British American Tobacco P.l.c. · LSE:BATS
British American Tobacco P.l.c — FY2019 Earnings Presentation
40 slides from British American Tobacco P.l.c's earnings presentation, Feb 27, 2020
Slide 1: Preliminary Results 2019
Preliminary Results 2019 27 February 2020 Jack Bowles Chief Executive Tadeu Marroco Finance Director 1
Slide 2: Important Information
Important Information The information contained in this presentation in relation to British American Tobacco p.l.c. (“BAT”) and its subsidiaries has been prepared solely for use at this presentation. The presentation is not directed to, or intended for distribution to or use by, any person or entity
Slide 3: Important Information
Important Information Forward-looking Statements (continued) Additional information concerning these and other factors can be found in BAT’s filings with the U.S. Securities and Exchange Commission (“SEC”), including the Annual Report on Form 20-F filed on 15 March 2019 and Current Reports on Form 6
Slide 4: Delivering a stronger, simpler, faster organisation
Delivering a stronger, simpler, faster organisation COMBUSTIBLE VALUE GROWTH STEP-CHANGE IN NEW CATEGORIES SIMPLIFY THE COMPANY 4
Slide 5: Reported results impacted by adjusting items
Reported results impacted by adjusting items REPORTED FY 2019 @ Current rates Revenue +5.7% New Category Revenue +36.9% Adjusting items incl: • Canada (Quebec) Operating Margin -320 bps • Quantum (simplification) • Other litigation (including Engle) Profit From Operations -3.2% • Russia (excise disp
Slide 6: A strong operational performance drives deleveraging
A strong operational performance drives deleveraging Strong adj revenue and profit at upper end of guidance* Group value share up +30bps in key markets, volume up +20bps New Category revenue growth* +32% De-leveraging of 0.4x (ex currency) and 0.5x (current rates) Dividend up 3.6% to 210.4p; 65% pay
Slide 7: Delivered on our commitments
Delivered on our commitments ADJUSTED FY 2019 2019 Guidance @ Constant rates Mid-Upper end Revenue +3-5%* +5.6% of range New Category Revenue +30-50%* +32.4% Operating Margin +50-100 bps +50 bps Current rates Upper end of Profit From Operations +5-7%* +6.6% range Diluted EPS High Single Figure* +8.4
Slide 8: Creating value
Creating value EXCELLENCE IN DELIVERING A POSITIVE ROBUST CORPORATE ENVIRONMENTAL SOCIAL IMPACT GOVERNANCE MANAGEMENT 24% reduction in CO2e Supplier code of conduct 100%* adherence to our Youth scope 1&2 emissions v 2010 defines minimum standards Access Prevention guidelines 60% reduction in waste t
Slide 9: … in a sustainable way
… in a sustainable way A STRONG APPROACH TO ESG* COMMITMENT TO TOBACCO HARM REDUCTION Consumers Employees CREATING VALUE Shareholders Society EXTERNAL RECOGNITION FOR PROGRESS TO DATE * ESG: Environmental Social Governance 9
Slide 10: Delivering on our priority areas…
Delivering on our priority areas… COMBUSTIBLE VALUE GROWTH › +4.6% Revenue growth* from combustibles STEP-CHANGE IN NEW CATEGORIES › Product roll-outs across New Categories SIMPLIFY THE › Simpler, faster, more agile COMPANY organisation * Adjusted and constant rate basis. See Appendix A1-A2. 10
Slide 11: Combustibles | Delivering value growth
Combustibles | Delivering value growth Revenue* from Combustibles 22.9 Growth drivers: • Value share growth +4.6% • Strong brands • Cigarette Price/Mix** 9% • Improved geographic mix 21.9 2018 £bn 2019 £bn *Adjusted and constant rate basis. See Appendix A1-A2 ** See Appendix A4.. 11
Slide 12: Combustibles | Value growth driven by strong brands
Combustibles | Value growth driven by strong brands +180bps +70bps Strategic brand +110bps volume share +100bps +120bps +100bps +20bps +110bps +20bps +40bps +50bps Group volume +40bps +20bps +10bps share 2012 2013 2014 2015 2016 2017 2018 2019 Combustible Strategic Brands Group Combustibles Value sh
Slide 13: US Combustibles | Value growth and share gains
US Combustibles | Value growth and share gains +30bps +50bps +50bps Value share Strategic Brands Premium share 36.8% value share 34.5% 34.6% -10bps +20bps +30bps Volume share Strategic Brands ASU30 share 34.6% volume share 44.1% 33.0% Share growth versus FY18 See Appendix A3. Source: Company data Th
Slide 14: Step-change in New Categories | Strong progress
Step-change in New Categories | Strong progress Modern Oral Vapour +273% 32% + New Category 23% FY revenue FY revenue THP + growth* growth* FY revenue + 23% FY revenue growth* growth* *Adjusted and constant rate basis. See Appendix A1-A2. 14
Slide 15: Vapour | Strengthening our position in Vapour
Vapour | Strengthening our position in Vapour › Category returning to sequential growth in all key markets in Q4 following the US vapour slowdown › Growing volume and value share across all markets including US through H2 › Well placed to meet PMTA May deadline 15
Slide 16: THP | Category growth has slowed
THP | Category growth has slowed › Opportunity is correlated with a unique set Industry volume split of characteristics: Japan & › Fewer potentially reduced risk* alternative South Korea products 63% › Lower cigarette strength delivery levels RoW 37% › Our focus: › Targeted geographic expansion (ENA
Slide 17: Modern Oral | Global category leader
Modern Oral | Global category leader ENA Modern Oral US Modern Oral Category Category 1,728m pouches 794m pouches BAT share 10% BAT share 62% BAT Global volume share 47 % Source: category size in number of pouches based on company data 17
Slide 18: Delivering sustainable High Single Figure EPS growth
Delivering sustainable High Single Figure EPS growth Guidance 3-5% Revenue growth* › Dynamic New Category regulation £5bn New Category Revenue^ in 2023/24 › Agile and responsive Increased New Category Investment › Retain flexibility to Continued margin growth invest Cash generation Continued delever
Slide 19: Looking into 2020
Looking into 2020 Guidance 3-5% Revenue growth* › Vapour markets yet to £5bn New Category Revenue^ in 2023/24 return to previous levels Increased New Category Investment › Modern Oral sales suspension in Russia; Continued margin growth Vapour ban in Mexico Cash generation › First signs of Coronaviru
Slide 20: Long-term sustainable growth
Long-term sustainable growth › Delivering on our three priorities › Investment in expanding New Category business › Quantum provides the efficiencies and capabilities › Creating a Better Tomorrow High Single Figure constant currency earnings** growth ** Adjusted diluted earnings per share at constan
Slide 21: Delivering today while investing in the future
Delivering today while investing in the future Margin growth* +50bps Investment £500m incremental marketing investment Strong Cash-Flow £1.9bn free cashflow after dividends De-leveraging on track 0.4 x (constant rates) Dividend 65% pay-out ratio *Adjusted basis See Appendix A1. Source: Company data
Slide 22: Strong revenue growth
Strong revenue growth Strategic Combustible revenue up +5.6%* 25.7 +5.6% Improved pricing 24.3 Good progress on New FY18 £bn FY19 £bn Categories growth Total Revenue *2019 Adjusted and constant rate basis V 2018 adjusted and current rate basis. See Appendix A1-A2. Source: Company data 22
Slide 23: Strong profit growth
Strong profit* growth Strong profit* growth across all regions 11.0 +6.6% Pricing and cost management focus 10.3 Significantly increased FY18 £bn FY19 £bn investment in New Categories Adj Profit from Operations * Adjusted profit from operations. 2019 Adjusted and constant rate basis V 2018 adjusted
Slide 24: Strong financial results across each region
Strong financial results* across each region Adjusted Value Adjusted Profit Revenue* Share from operations* APME +5.6% +30bps +7.9% AMSSA +9.2% +20bps +10.0% ENA +5.0% Flat +3.3% US +4.4% +30bps +6.4% *Adjusted and constant rate basis. See Appendix A1-A2. Value share of cigarettes (APME: cigs+THP).
Slide 25: US | Strong results in the US
US | Strong results in the US Revenue* Adj. Profits from Ops.* Driven By: • Improved Pricing 9.9 4.8 • Reduced discounting +4.4% +6.4% • Strong brands • Efficiency savings 9.5 4.5 2020 Estimates: 2018 £bn 2019 £bn 2018 £bn 2019 £bn ~5% Volume Decline Source: Internal Estimates *2019 Adjusted and con
Slide 26: US Vapour | Strong growth in Vuse value share
US Vapour | Strong growth in Vuse value share 21.2 Vuse value share +8.7ppts 15.4 12.5 Vuse Alto value share +12.7ppts 2.7 Dec '18 Dec '19 Source: Retail value share data Dec 19 with growth v Dec 18. See Appendix A3. 26
Slide 27: Vapour | Great products driving growth
Vapour | Great products driving growth Market leaders in ENA Building momentum in AMSSA ePen3 reached 10.3% Value share; ePOD driving Vype’s value share recovery 2nd product of the year win for Vype with ePOD to 28.2% Vype is market leader in closed systems; Twisp acquisition: National distribution,
Slide 28: THP | glo launches completed Q4
THP | glo launches completed Q4 glo Pro – good initial results glo Sens – work to do Boost function › Consumer interest in the Encouraging hybrid category consumer Induction heating response Faster ramp up › Limited traction for our offer to date 28
Slide 29: THP | Growing share of total nicotine in Japan
THP | Growing share of total nicotine in Japan Latest weekly share of glo of 5.2% >1% volume share of FMC+THP Russia +1.5ppts 19.2 1.9% volume share Latest Total Nicotine 18.9 volume share of 19.2% (Moscow) 16.8 +1.5ppts Kazakhstan 1.9% volume share (Nur-Sultan) +2.4ppts 15.9 Jan '18 Dec '18 Dec '19
Slide 30: Modern Oral | Global leadership achieved
Modern Oral | Global leadership achieved Traditional Oral Markets New Modern Oral Markets +1.8ppts +15.5ppts Sweden 3.2% volume share Switzerland 41% volume share +5.2ppts +27ppts Norway 14% volume share Russia 27% volume share +75ppts Encouraging early results from city tests Denmark 75% volume sha
Slide 31: Modern Oral | Growing share in a growing category in the US
Modern Oral | Growing share in a growing category in the US Top 5** Velo shares 10.1% Volume share 58.0% New Jersey of Modern Oral 48.4% Maryland › Over-indexing* share in key states 33.8% Indiana › National distribution at >100k outlets › Top 5 Velo share in states approximating 13% of US total 31.
Slide 32: Increasing investment and growing margin
Increasing investment and growing margin +0.5% -3.0% 3.9% +50bps 42.6% -0.4% 43.1% growth v FY18 2018 Adjusted Changes in Incremental New Impact of 2019 Adjusted Operating Margin underlying business Categories transactional FX Operating Margin investment impact 32
Slide 33: Strong cash generation driving de-leveraging
Strong cash generation driving de-leveraging Adj. Net Debt / Adj. EBITDA 4.0x -0.4x 3.6x -0.1x 3.5x 1.8 0.6 0.9 43.4 -0.5x 0.4 £bn 42.6 41.7 Adj. Net Debt 2018 Free Cash Flow after Other cash & non IFRS16 Adoption Adj. Net Debt FY FX Adj. Net Debt FY Dividends @CONR cash @CONR @CONR 2019 @ CONR 2019
Slide 34: Committed to de-lever to below 3.0x by end of 2021
Committed to de-lever to below 3.0x by end of 2021 Adj Net Debt*/Adj EBITDA** 2020 Guidance 4.0 x FY Operating cash 3.5 x c.3.2 x conversion target above <3.0 x 90% Dividend – 65% pay-out ratio / growth in GBP terms 2018 2019 2020e 2021e *Adjusted Net Debt is total borrowings, including related deri
Slide 35: Continued High Single Figure earnings growth
Continued High Single Figure earnings growth* +8.4% +9.1% 323.8 321.6 2.2 0.7 0.1 1.0 2.6 3.4 + 8.4%* 296.7 22.1 2018 FY Adjusted Net Associates Taxation Non- Number 2019 FY at FX Impact 2019 FY at Profit from Finance Controlling of Shares Constant Current FX Operations Costs Interests FX *FY18 Adju
Slide 36: A strong year of delivery
A strong year of delivery COMBUSTIBLE VALUE › Continued strong combustibles GROWTH performance › Delivering earnings and dividend STEP-CHANGE growth for shareholders IN NEW CATEGORIES › Good progress on our priority areas, with more to come SIMPLIFY THE COMPANY › Capital Markets Day on March 18th 36
Slide 37: Q&A
Q&A 27 February 2020 Jack Bowles Chief Executive Tadeu Marroco Finance Director 37
Slide 38: Appendix
Appendix A1: Adjusting (Adj.) Adjusting items represent certain items which the Group considers distinctive based upon their size, nature or incidence. A2: Constant currency Constant currency – measures are calculated based on a re-translation, at the prior year’s exchange rates, of the current year
Slide 39: Top BAT Market Share Movements (1)
Top BAT Market Share Movements (1) SOM FY19 Movement SOM FY19 Movement Market Market (%) (ppt) (%) (ppt) Argentina 23.3 0.0 France 17.4 0.1 Australia 41.5 0.4 Germany 20.0 (0.4) Bangladesh 68.4 1.1 Indonesia 7.9 (0.2) Belgium 24.8 (0.5) Italy 18.9 0.2 Brazil 75.8 (1.4) Japan 17.9 1.7 Bulgaria 37.8 (
Slide 40: Top BAT Market Share Movements (2)
Top BAT Market Share Movements (2) SOM FY19 Movement SOM FY19 Movement Market Market (%) (ppt) (%) (ppt) New Zealand 72.1 0.4 Spain 11.9 0.4 Pakistan 74.9 1.6 Switzerland 35.0 (0.5) Poland 28.6 0.3 Taiwan 10.0 0.0 Romania 58.9 0.2 Turkey 22.9 (0.1) Russia 23.8 0.4 UK 9.3 (0.1) South Africa 77.2 (0.2
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